Tesla, TSLA & the Investment World: the Perpetual Investors' Roundtable

[Nb1277]

What are the repercussions if the court rules in favor of the SEC?

 

[ls7corvete]

By this point, if Elon doesn't have a coherent and clearly legal way to take Tesla private on his own terms, he's an idiot. He's not an idiot.

I predict he will do that if he suffers anything adverse from this SEC idiocy. What he's trying to do is hard enough without the endless crap he's been taking. Private at $360. Small investors and ARK be damned. Too bad.

Perhapa like his new mortgage money into tsla on the dip. Mind blown

 

[kyzhk]

It was material, and it wasn't guidance.

• A) The guidance was 350k - 500k. That's a huge range. There's a big difference between coming in at the low-end and coming in at the high-end. Elon's tweet said "we will make the high-end" - that's material.
  
  
• B) It wasn't guidance; it was a declarative statement. That's why "funding secured" was so problematic - he declared to have funding when, in fact, he didn't.

And just consider this (I'll use your big letters):

One of the top securities lawyers in the world resigned over this

If it was "all good," why would Tesla's lawyer resign?

The biggest mistake, imo, was the "I don't respect the SEC" thing several months ago. His biggest mistake was taunting the SEC, and now he's going to pay for it.

Define "Material".

If you cannot give a well defined definition of "material", I would suggest that we measure how "material" a news is by looking at its immediate impact to share price (say, over a time window of 20 minutes before and after the "news" is published, how much did the volume weighted share price move?)

TSLA barely moved, so if we were to accept that share price movement is an accurate proxy to determining whether a given news is "material", then SEC doesn't have a case here.

Also, EM's original tweet is

"Tesla made 0 cars in 2011, but will make around 500k in 2019"

How convenient was it for you to ignore the highlighted keyword.

 

[MarcusMaximus]

AH price seems to be recovering.

 

[riverFox]

Would be funny if the Bloomberg tracker is right and Tesla is actually building 7k Model 3’s a week. Would be extra funny if Tesla upgrades guidance to 450-500k production this year. Wonder if SEC’s case would hold up then.



Lol. Sounds like me in 2018

Sounds like irony

 

[tracksyde]

I believe by confirming the high end of the range of guidance it is a material change in guidance. This sort of stuff often moves companies and it did move tesla after hours, albeit small.

The Fourth Quarter 2018 Update letter contained this statement in the Outlook section:

Barring unexpected challenges with Gigafactory Shanghai, we are targeting annualized Model 3 output in excess of 500,000 units sometime between Q4 of 2019 and Q2 of 2020.

In fact, that section is what Tesla referred to in their reply to the SEC when they said that Elon believed he was just restating information that had already been "vetted, pre-approved, and publicly disseminated"

Dropbox - 1-18-cv-08865-AJN - Simplify your life

 

[KarenRei]

FYI:

779. Burden of Proof in a Criminal Contempt Action

779. BURDEN OF PROOF IN A CRIMINAL CONTEMPT ACTION
In a criminal contempt action the United States had the burden of proving each of the elements of the offense beyond a reasonable doubt. See Bloom v. Illinois, 391 U.S. 194, 205 (1968); Gompers v. Bucks Stove and Range Co., 221 U.S. 418, 444 (1911); Falstaff Brewing Corp. v. Miller Brewing Co., 702 F.2d 770, n. 1 (9th Cir. 1983); United States v. Columbia Broadcasting System, 497 F.2d 107 (5th Cir. 1974); Peterson, 456 F.2d 1135 (10th Cir. 1972).

 

[kyzhk]

FYI:

779. Burden of Proof in a Criminal Contempt Action

779. BURDEN OF PROOF IN A CRIMINAL CONTEMPT ACTION
In a criminal contempt action the United States had the burden of proving each of the elements of the offense beyond a reasonable doubt. See Bloom v. Illinois, 391 U.S. 194, 205 (1968); Gompers v. Bucks Stove and Range Co., 221 U.S. 418, 444 (1911); Falstaff Brewing Corp. v. Miller Brewing Co., 702 F.2d 770, n. 1 (9th Cir. 1983); United States v. Columbia Broadcasting System, 497 F.2d 107 (5th Cir. 1974); Peterson, 456 F.2d 1135 (10th Cir. 1972).

It was "contempt to a civil case settlement", does this apply?

 

[Barklikeadog]

I don't think it's about the substance of the statement, it was the process that is the problem

 

[kyzhk]

I don't think it's about the substance of the statement, it was the process that is the problem

Just gonna keep repeating this information to make sure everyone's on the same page -

Mod: No, don't do this. If you do, don't admit to it. --ggr.

Okay just to summarize argument from both side:

SEC:
Elon Musk's tweets was not reviewed before he posted them as agreed in the settlement.

Elon Musk / Tesla (Source: Tesla, TSLA & the Investment World: the 2019 Investors' Roundtable):
His tweet about the 400k/500k production is
a) not material and
b) not news
because it has already been guided in earning report.

My personal opinion:
The settlement qualify requirement on review as "market moving material news". Since the market after hour barely moved in response, the tweet was not market moving material news and therefore did not need to be reviewed as judged correctly by EM.

 

[AcesDealt]

I don't think it's about the substance of the statement, it was the process that is the problem

Yep - you can factor out what Elon's *intentions* were or whether 500k was sufficiently wrong to become *material*. The point is whether there are safeguards against Elon delivering material information through Twitter.

It does seem silly in practice to litigate against a minor infraction, but the whole point is to prevent a major 420 event occurring again. I would think the SEC wins this but that the penalty is fairly minor.

 

[Artful Dodger]

*If* they contain new material information. This didn’t, either as he intended to write and corrected it to(run-rate of 500k) *or* as actually written, since that was included in the range he gave during the conference call.

Well, at least some in the After-hours session agree: back up to $287.xx after quickly reaching a low of $292.xx minutes after the story broke.

So I think that (after the MMD) tomorrow will shake out as a $10 haircut. Shortz get their way for the month of Feb.

Next TSLA move will depend on the Judge's ruling. Any chance this comes out by Mar 01? If it's hanging over the SP when news breaks of Tesla paying of the convertibles in cash, there will be a muting effect on the SP.

 

[anon]

FYI:

779. Burden of Proof in a Criminal Contempt Action

779. BURDEN OF PROOF IN A CRIMINAL CONTEMPT ACTION
In a criminal contempt action the United States had the burden of proving each of the elements of the offense beyond a reasonable doubt. See Bloom v. Illinois, 391 U.S. 194, 205 (1968); Gompers v. Bucks Stove and Range Co., 221 U.S. 418, 444 (1911); Falstaff Brewing Corp. v. Miller Brewing Co., 702 F.2d 770, n. 1 (9th Cir. 1983); United States v. Columbia Broadcasting System, 497 F.2d 107 (5th Cir. 1974); Peterson, 456 F.2d 1135 (10th Cir. 1972).

Isn't this a Civil Contempt case? After all, there were no criminal charges in the first place. The burden for proof is lower.

I believe that Musk may well be in contempt. According to the filing, Tesla's communication policy requires him to seek pre-approval for all communications at most 2 days in advance, so it is not sufficient to claim that his communications were approved 20 days prior. It is also not sufficient to claim that the mistake was inadvertent - again, the filing states that intent is not required. I think this point is crucial - it is irrelevant that he did not intend to make a material statement; the only thing that matters is the he did in fact make an incorrect material statement.

 

[Unpilot]

Alright, well, this has been interesting. Will make this my last post.



Big difference. One is "we will make around 500k this year," and the other is "annualized output." The two statements aren't comparable.



This isn't a criminal complaint. It's a securities complaint, which has much looser standards.

The likely outcome is the judge will ask the SEC what remedies they're seeking. Best-case, SEC asks for another fine against Musk/Tesla. Worst-case, SEC asks for a D&O bar.

Bye

 

[bdy0627]

"Written Communications that contain, or reasonably could contain, information material to Tesla or its stockholders must, prior to posting or other publication, be submitted to Tesla’s General Counsel and Disclosure Counsel" - Obviously Elon will argue that there was no intent whatsoever to write a post that would contain material information to Tesla or its stockholders.

Totally agree with this. If Elon was simply discussing the level of production Tesla had guided for in order to make an unrelated point about Tesla's rapid progress, but made an "oops" in terms of not clarifying it was an annualized production level, he would not have been required to have his tweet pre-approved. It is not logical to make the jump to concluding that he in fact should have known he needed it pre-approved only because he tweeted information that appeared different than guidance.

My initial thought on this is wondering if SEC knows this will just result in a warning since it is not a clearcut violation. They may feel the need to do something since Elon continues to tweet about Tesla stuff similar to before the agreement, and he has even indicated that his tweets are not pre-approved. To be in contempt, Elon has to knowingly violate the terms of the agreement, essentially thumbing his nose at the court. Courts do not like that. Unknowingly violating the agreement really doesn't count as contempt. By all appearances, this was not an intentional violation. I don't know how in bed these judges may be with the SEC, but I think it's a serious stretch to conclude Elon's tweet was in contempt of the agreement. However, we also know a lot about Tesla guidance and Elon's tweets. We are very used to Elon's tweeting. A judge may have no idea about it all and could focus very closely on whether or not Elon was tweeting material information regarding Tesla without pre-approving the tweet. In that case, I think there is room for finding him in contempt. You really have to look at the overall context of his tweets to understand that he was not thumbing his nose at the court. I'm not at all sure a judge will take that approach.

 

[Remus]

I think whether or not Tesla produces 500k this year is not what SEC cares about. SEC only has one claim here:
"EM did not have his market moving material news about tesla reviewed before posting as agreed in settlement".

I outlined the argument on the other side in another post.

A counter argument maybe that since the tweet didn't move the market, so it was not"market moving" ?

 

[kyzhk]

Well, at least some in the After-hours session agree: back up to $287.xx after quickly reaching a low of $292.xx minutes after the story broke.

So I think that (after the MMD) tomorrow will shake out as a $10 haircut. Shortz get their way for the month of Feb.

Next TSLA move will depend on the Judge's ruling. Any chance this comes out by Mar 01? If it's hanging over the SP when news breaks of Tesla paying of the convertibles in cash, there will be a muting effect on the SP.

I think it depends on the worst case if the Judge found the claim in favor of SEC.

 

[Krugerrand]

A private Tesla looking better by the second and it looked awesome last year. That’s what I’m asking Santa for, sooner rather than later.

 

[anon]

Totally agree with this. If Elon was simply discussing the level of production Tesla had guided for in order to make an unrelated point about Tesla's rapid progress, but made an "oops" in terms of not clarifying it was an annualized production level, he would not have been required to have his tweet pre-approved. It is not logical to make the jump to concluding that he in fact should have known he needed it pre-approved only because he tweeted information that appeared different than guidance.

My initial thought on this is wondering if SEC knows this will just result in a warning since it is not a clearcut violation. They may feel the need to do something since Elon continues to tweet about Tesla stuff similar to before the agreement, and he has even indicated that his tweets are not pre-approved. To be in contempt, Elon has to knowingly violate the terms of the agreement, essentially thumbing his nose at the court. Courts do not like that. Unknowingly violating the agreement really doesn't count as contempt. By all appearances, this was not an intentional violation. I don't know how in bed these judges may be with the SEC, but I think it's a serious stretch to conclude Elon's tweet was in contempt of the agreement. However, we also know a lot about Tesla guidance and Elon's tweets. We are very used to Elon's tweeting. A judge may have no idea about it all and could focus very closely on whether or not Elon was tweeting material information regarding Tesla without pre-approving the tweet. In that case, I think there is room for finding him in contempt. You really have to look at the overall context of his tweets to understand that he was not thumbing his nose at the court. I'm not at all sure a judge will take that approach.

The SEC court filing states that intent is not required for contempt.

 

[kyzhk]

A counter argument maybe that since the tweet didn't move the market, so it was not"market moving" ?

Yes, thats also my personal opinion. I guess I will attach this in every one of my reply regarding this matter.

My personal opinion:
The settlement qualify requirement on review as "market moving material news". Since the market after hour barely moved in response, the tweet was not market moving material news and therefore did not need to be reviewed as judged correctly by EM.